Credit Terms for Loans and Credit Cards

Knowing what your getting into is half the battle when it comes to credit cards and other things that deal with your credit (such as some student loans). If you understand upfront the terms and jargon used in student loan and credit card agreements, you are better equipped to make the correct decisions when it comes to your credit. You can find student loan specific terms here, or find general credit terms below:

Annual Percentage Rate – Rate of interest charged for using the bank or credit card company’s money. This rate is applied to the outstanding balance each month. Fixed APR does not change but rather stays the same for a specified period of time, unless the borrower fails to make their payments. Variable APR rates change and can be adjusted sometimes as frequently as monthly. Introductory rate is a temporary lower APR that usually lasts for about six months before converting to the normal fixed or variable rate. Default rate is the interest rate charged if you are late with payments.

Grace period – The time allowed to pay credit card purchases without being billed a finance charge and/or late fee. It is usually 10-28 days. Keep in mind; this only applies if the balance is paid in full each month.

Minimum monthly payment – The lowest amount you are required to pay each month. Paying just the minimum amount does very little to reduce the amount owed because the credit card companies calculate the monthly payments to cover the monthly interest and just a small fraction of your principal.

Annual Fees – Some cards charge holders annual membership or participation fees. You must pay this fee whether you use your credit card or not. Annual fees typically range between $20 and $100.

Finance charge – The dollar amount you pay to use credit. Besides interest costs, this may include other charges such as cash-advance fees. These are charged against your card when you borrow cash from the lender. You generally pay higher interest on cash advances than on purchases — check your latest bill to find out how much you are being charged to use their cash.